Page 12 - ISQ UK_October 2021

Emerging Markets: An Uneven Recovery,

but Strong Long-Term Potential

Tracey Manzi, CFA, Senior Investment Strategist, Investment Strategy

The global economy has recovered strongly from the pan- FACTORS SHAPING OUR OUTLOOK
demic, however, growth has been uneven. Advanced GROWTH SETBACK IS TEMPORARY
economies have been in the driver’s seat throughout the Emerging markets have been a dominate force in the global
recovery, as access to vaccines and acceptance rates have economy over the last twenty years. In 2001, emerging markets
accelerated the reopening process in their respective econo- accounted for over 40% of global growth. Today, they represent
mies. Emerging markets have faced considerable challenges nearly 58% of the global economy. The International Mone-
tary Fund expects their share to rise to over 60% by 2025 as the
as the lingering virus and slower than anticipated vaccine
urbanisation of their economies and growth of the middle class
rollouts have created headwinds for their recoveries. continues. While pandemic-related challenges are temporarily
restraining growth relative to developed markets, we do not
These diverging paths have led to a narrowing in the growth pre- expect this trend to continue. With vaccination rates improving
mium between developed and emerging markets and caused the and tentative signs that COVID cases are stabilising, the near-
performance of emerging market equities to fall further behind term weakness in emerging market growth may not be as soft
their developed peers. While the recent setback is disappointing, as the market fears. This should tilt the growth differential back
we still believe that emerging markets offer strong long-term in favour of emerging markets, with another meaningful boost
potential and diversification benefits in a balanced portfolio. when the impact of the sizeable fiscal and monetary stimulus in
Below, we outline the factors that are shaping our view and some developed markets starts to fade.
issues to watch in the current macro environment.

We still believe that emerging markets offer
strong long-term potential and diversification
benefits in a balanced portfolio.

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